TIO NETWORKS CORP.
Ticker
Equity Research | Technology
Please see important disclosures at the end of this document
Recommendation
TSXV:TNC
BUY
$1.00
$0.50
(unchanged)
(unchanged)
FQ3-11 Preliminary Update Indicates Another Strong Quarter – US$ Transaction
Revenue Up 11% Sequentially
$0.70-$0.45
46.4
$23.2
$2.7
$20.5
July 31
2009A FY10A FY11E FY12E
$21.5 $27.8 $35.4 $45.1
$0.7
$0.5
$1.2
$2.4
3.3%
1.9%
3.4%
5.3%
($0.05) ($0.04) ($0.02) $0.01
1.0×
0.7×
0.6×
0.5×
29.2× 39.8× 17.3×
8.6×
NM
NM
NM
NM
Trading History (TSXV:TNC)
5,000
$0.75
4,000
$0.50
3,000
2,000
$0.25
Share Price
Volume (thousands)
$1.00
6,000
1,000
Mar-11
May-11
Jan-11
Feb-11
Oct-10
Nov-10
Sep-10
Jun-10
Aug-10
$0.00
May-10
0
Source: Bloomberg
Company Description
TIO Networks operates as a multi-retailer network of financial
services kiosks for the cash preferred consumer marketplace
in North America. It designs and distributes TIO Services,
which consist of a transaction processing system that
includes financial products and services, such as bill payment
and other payment-related products/services. The Company’s
principal products and services include bill payment
processing services extended to a multitude of platforms such
as POS (point of sale), automated kiosks, mobile Smartphone
applications and web. The Company offers its services
primarily to telecom, wireless, cable and utility bill issuers. The
Company is based in Vancouver, Canada, with a significant
part of its workforce in the US.
Sameet Kanade, CPA, MBA
(416) 644-8123
[email protected]
TIO Networks reported preliminary transaction volumes for FQ3-11
(April). Driven by increased volumes with 2 key customers and
resultant increase in average revenue per transaction, transaction
revenue was ahead our estimates.
Investment Thesis
Financial Data & Valuation
(Millions, except EPS)
May 18, 2011
Event
Market Data
52-week High-Low
Shares Outstanding (millions)
Market Capitalization (millions)
Cash (millions)
Enterprise Value (millions)
Fiscal Year End
Revenue
EBITDA
EBITDA Margin
Adj. EPS
EV/Sales
EV/EBITDA
P/E
12-month Target
While these figures are still preliminary, the increase in transaction
volumes, and resultant transaction revenues both in US$ and C$,
underscore the significant growth potential within the existing
customer base and the strength of the TIO payment/transaction
processing platform.
The key highlights are:
ƒ Transaction volumes were 3.9 million, +2.3% Q/Q and +19.4%
Y/Y, and are in-line with our estimate. Based on our analysis,
transactions per location remained flat at 350.
ƒ Transaction revenue increased 11.2% Q/Q and 18.5% Y/Y to
US$9.5 million (C$9.3 million), and was ahead of our $8.9 million
estimate. The difference is mainly due to higher avg. revenue per
transaction of US$2.42, compared to our US$2.25.
ƒ We understand that the increase in avg. revenue per transaction
was driven by a combination of new initiatives with existing
customer as well as commencement of service delivery with new
customers such as MoneyGram and PG&E.
ƒ During the quarter, TIO commenced handling the prepaid portion
of AT&T bill payment transactions, which resulted in significant
increase in transaction revenue. We note that more than 85% of
current revenue is derived from 2 carriers customers (AT&T and
Cricket).
While the FQ3-11 preliminary results do provide strong impetus for an
upward revision on our forecasts, we have chosen to remain
conservative in our approach given the relative size of the company
and the potential for quarterly top-line lumpiness. Hence, we are
maintaining our estimates pending release of complete FQ3-11 results.
Investment Conclusion
Support by a strong management team, prudent fiscal discipline and
rapid growth in transaction volumes, we believe TIO Networks in on
the cusp of accelerated growth. With the significant addition of
marquee customer in C2011, we would not be surprised to see a 2x
increase in revenues in the next 24 months, with significant
improvement in margins, which may force a higher re-rating for the
stock.
We reiterate our BUY recommendation and $1.00 per share
target price, based on a DCF valuation.
Canada's Small Cap Investment Bank
IMPORTANT DISCLOSURES
May 18, 2011
Applicable disclosures:
TIO Networks Corp.
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none
Within the past 12 months, Northern Securities Inc. managed or co-managed a public offering or private placement of securities for the subject company.
Within the past 12 months, Northern Securities Inc. received compensation for investment banking services from the subject company.
Northern Securities Inc. is currently providing the subject company with investment banking services.
Within the past 12 months, Northern Securities Inc. received compensation for products or services other than investment banking services from the subject company.
Northern Securities Inc. is currently providing the subject company with non-securities services.
Northern Securities Inc. and its affiliates collectively beneficially own 1% or more of the equity securities of the subject company.
The research analyst/associate or a member of the research analyst/associate’s household has a long or short position in the shares of the subject company.
The research analyst has visited the material operations of the subject company.
The subject company provided a portion of the transportation and accommodation costs incurred during the visit of the material operations.
The particulars contained herein were obtained from sources that we believe to be reliable but are not guaranteed by us and may be incomplete. The opinions expressed
are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation of offer to buy or sell the securities mentioned herein.
Northern Securities Inc. may act as financial advisor, fiscal agent or underwriter for certain of the companies mentioned herein, and may receive remuneration for its
services. Northern Securities Inc. or its officers, directors, representations, associates, may have a position in the securities mentioned herein and may make purchases or
sales of these securities from time to time in the open market or otherwise. Northern Securities Inc. is a wholly owned subsidiary of Northern Financial Corporation.
Investment Opinion Definition
STRONG BUY:
BUY:
HOLD:
SELL:
SPECULATIVE BUY:
NSI expects the share price to appreciate 30% or more over the next 12 months.
NSI expects the share price to appreciate 10% to 30% over the next 12 months.
NSI expects the share price to appreciate 10% or less over the next 12 months.
NSI expects the share price to have a negative rate of return over the next 12 months.
NSI expects the share price to appreciate substantially over the next 12 months, but with a high level of
inherent risk.
Note: Percentages are approximate and ratings are at the analyst’s discretion. Distribution of research ratings is available at
www.northernsi.com
Analyst Certification
All of the views expressed in this report accurately reflect the personal views of the responsible analyst about any and all of the
subject securities or issuers. No part of the compensation of the responsible analyst named herein is, or will be, directly or
indirectly, related to the specific recommendations or views expressed by the responsible analyst in this report.
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Material Disclosures
The analyst responsible for preparing this research report receives compensation that is based upon various factors, including
investment banking revenues of Northern Securities Inc.
Northern Securities Inc. may receive or may seek compensation for investment banking services from all companies under
research coverage within the next three months.
Canada's Small Cap Investment Bank